Closing Recap

Tuesday, January 31, 2023

Index	Up/Down	%	Last
DJ Industrials	369.80	1.10%	34,086
S&P 500	58.93	1.47%	4,076
Nasdaq	190.74	1.67%	11,584
Russell 2000	46.22	2.45%	1,931

 

Equity Market Recap

·     After a one-day pullback Thursday following a massive January stock market run, major averages resumed the upward euphoric momentum into a round of key earnings tonight/tomorrow and the FOMC interest rate policy meeting Wednesday afternoon. Labor costs increased less than expected in the fourth quarter as wage growth slowed, raising hopes of a “softer” Fed tomorrow, where a 25-bps hike is widely expected – but hopes for a more “dovish” outlook for future meetings. Gains were widespread, with 10 of the 11 S&P 500 sectors in positive territory, led by Industrials and Materials after a strong round of China manufacturing data and consumer discretionary while utilities lagged. Shares of GM in autos, PHM in homebuilders, SPOT in media, AOS in industrials among the biggest earnings upside movers while CAT, MCD, PSX, GLW were among the day’s biggest losers on results. Several companies announced stock buyback plans to help shares after earnings results (UPS, UBS, MPC, VSCO among them). Still a big week of earnings with AAPL, AMZN, GOOG, META on deck as well as three central bank meetings. Market breadth has advancers leading decliners by 5:1 margin. Stocks end the month with a more than +10% gain for the Nasdaq, +5.5% for the S&P, +9% for the Russell 2000 and Dow +2% MTD.

 

Economic Data:

·     Inflation data eases as U.S. Q4 employment cost index (ECI) +1.0%, lowest since June 2021 (vs. consensus +1.1%) and vs Q3 +1.2%; Q4 wages/salaries +1.0% vs Q3 +1.3% (previous +1.3%) and U.S. Q4 benefit costs +0.8% vs Q3 +1.0%.

·     Chicago PMI index for January reported ay 44.3, down from prior month off 44.9 and below the consensus 45.1 economist forecast; new orders, employment, and inventories fell at a faster pace; supplier deliveries rose at faster pace; production fell at slower pace.

·     Consumer Confidence for January reported at 107.1, below consensus of 109.0 and down from the prior month reading of 108.3; US jobs hard-to-get index 11.3 in January vs December revised 11.9 (previous 12.0).

·     S&P CoreLogic Case-Shiller Home Price Index for Nov: Seasonally adjusted HPI Composite for 20 cities: -0.5% M/M to -0.5% consensus and -0.5% prior. HPI Composite for 20 cities, not seasonally adjusted: -0.8% M/M vs. -0.8% prior. HPI Composite for 20 cities, not seasonally adjusted: +6.8% Y/Y vs. +6.7% consensus and +8.6% prior.

 

Commodities, Currencies and Treasuries

·     Oil prices climb, with WTI crude +$0.97 or 1.25% to settle at $78.87 per barrel; natural gas prices extend losses, falling 40% in January alone to $2.684 mln Btus, worst monthly decline in two-decades and at their lowest levels since April 2021, down 74% from their peak last August.

·     OPEC oil output fell in January, a Reuters survey found, as Iraqi exports declined, and Nigerian output did not recover further. OPEC pumped 28.87 million barrels per day (bpd), the survey found, down 50,000 bpd from December. In September, OPEC output hit its highest since 2020. Delegates have said that the group will recommend keeping production levels unchanged at a monitoring meeting tomorrow, holding in place hefty output cuts.

·     Inflation has continued to ease: Commodity price changes over the last year: Sugar: +15%, Heating Oil: +13%, Corn: +9%, Gold: +8%, US CPI: +6.5%, Soybeans: +6%, Silver: +5%, Gasoline: -1%, Wheat: -3%, Copper: -5%, Brent Crude: -5%, Zinc: -6%, WTI Crude: -10%, Coffee: -27%, Cotton: -30%, Natural Gas: -38%, Lumber: -48%, as per Charlie Bilello.

·     The US dollar and Treasury yields both erased earlier gains, as the “tamer” ECI data this morning once again boosted hopes of an easing Fed by year-end and the cycle of rate hikes to slow sooner than the Fed has communicated. The 10-yr yield holding around 3.5% and dollar index (DXY) 102. April gold prices rise $6.10 or 0.3% to settle at $1,945.30 an ounce, reversing earlier losses as the dollar erases gains.

 

 

Macro	Up/Down	Last
WTI Crude	0.97	78.87
Brent	-0.41	84.49
Gold	+6.10	1,945.30
EUR/USD	0.0025	1.0868
JPY/USD	-0.30	130.15
10-Year Note	-0.0028	3.524%

 

 

Sector News Breakdown

Consumer

Autos:

·     GM led autos higher as Q4 adj EPS $2.12 tops consensus of $1.67; Q4 revs $43.11B vs. est. $40.5B; guides 2023 adj EPS $5.00-$7.00 vs. est. $5.70; says on track to produce 400,000 EVs in North America from 2022 through the first half of next year; also said they would jointly invest with LAC to develop Thacker Pass mine in Nevada.

·     Tesla (TSLA) said it will boost its CAPEX by about $1 billion in the next two years to between $7 billion and $9 billion, up from its forecast $6 billion to $8 billion spend this year.

 

Consumer Staples & Restaurants:

·     Dow component MCD reports Q4 EPS $2.59 vs. est. $2.44; revs fall -1.4% y/y to $5.93B but tops $5.63B estimate; Q4 comp sales rose +12.6% vs. est. 8% and U.S. comps +10.3% vs. est. +7.8% and int’l comps +12.6% – Operating income $2.58B, +7.7% y/y, vs. est. $2.6B; said expect inflationary costs to continue to pressure margins in 2023

·     In foods: SYY reported Q2 adj EPS miss of $0.80 vs. est. $0.84 on in-line revs of $18.6B saying U.S. Foodservice volume increased 5.2% versus the same period in fiscal year 2022; JJSF reported 1Q FY23 revenues results that were below consensus estimates, while adjusted EPS of $0.42 came in below consensus estimates of $0.47; gross margin of 25.9% up 100-bps y/y. DOLE said it sold its fresh vegetables division for $293 million to an affiliate of Fresh Express Inc.

·     NUS downgraded to Hold at Jefferies as see a worsening macro backdrop challenging consumer demand for NUS’s high priced beauty assortment. Also, the growth oppty in China has been tempered with concerns over possible regulatory intervention from the Chinese government.

 

Retailers:

·     DG CFO John Garratt to retire effective June 2.

·     VSCO preannounces better Q4 as sees EPS $2.25-$2.35 v prior $2.05-$2.24 and est. $2.25) and enters another $125m ASR and guides operating income $265-$275m vs. $263m.

·     In appliances: WHR Q4 ongoing EPS $3.89 vs est. $3.23, revenue $4.92B vs est. $5.07B, Full year ongoing revenue $19.72B vs 17-Jan guidance $19.70B, Ongoing EBIT $171M vs Con $211.9M.

·     Cowen said they favor RL, SKX and DECK as think top-line trends are better than feared and are above Consensus on DECK, RL, SKX and FIGS. Into 2H:23, lower supply chain and freight should create an inflection in gross margin, while the FX reversal creates additional sales and gross margin tailwinds: Raise tgts for DECK, FIGS, UAA, VFC

·     In handbag preview, Bank America said they expect DTC strength continued over the holidays as tourism and a resumption of in-person shopping continue to improve…but cautious on the wholesale channel and reiterate Buy on TPR given its oppty for consistent growth.

 

Leisure, Gaming & Lodging:

·     In casinos and gaming (WYNN, LVS, MGM, CZR, BYD), Nevada reports December statewide gaming win up 14.3% to $1.31B; reports Las Vegas Strip gaming win up 25.1% versus last year to $814.19M

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders: PHM Q4 EPS $3.63 ex-items vs est. $2.93 and revs $5.17B tops est. $4.58B, Closings Units 8,848 vs est. 7,903, New orders Units 3,964 weaker and backlog Units 12,169 vs est. 13,576. NVR handily beats Q4 EPS and revenue as Net Income +36%, Revenues +22% (Y/Y), while New Orders -27%. MDC Q4 EPS $1.08 misses the $1.52 est. revs of $1.49B beats $1.33B estimate; Q4 average selling price of deliveries up 8% to $582,000. Reports Q4 unit deliveries down 4% to 2,554. LEN, MTH, PHM hitting 52-week highs for builders.

 

Energy

·     Oil giant XOM Q4 adj EPS $3.40 vs. est. $3.29; Q4 revs $95.43B vs. est. $94.67B; posted $59 billion in adjusted profit for 2022; results far exceeded the then-record $45.2 billion net profit it reported in 2008; cash flow from operations soared to $76.8B last year, up from $48.1B in 2021.

·     In refiners, MPC Q4 EPS $6.65 tops $5.67 estimate as refining margins soared amid tight supplies as crude capacity utilization was about 94%, resulting in total throughput of 2.9 million barrels per day (bpd); Refining and marketing margin rose to $28.82 per barrel vs. $15.88 per barrel y/y and said board approves incremental $5B share repurchase authorization. PSX Q4 EPS $4.00 below est. $4.35 while cash flow from operations $4.8B vs. $1.8B y/y; Q4 total revs $40.90B vs. est. $39.12B and said on track to deliver $1B annualized savings.

·     Oil & Gas Equipment: HP Q1 EPS $0.90 vs. est. $0.80; Q1 North America Solutions operating income increased $53M sequentially, while direct margins increased $57M; CRK to replace ADC in the S&P SmallCap 600 index on Feb 6^th.

·     Alt power, Biofuels: GPRE shares rise after activist investor Ancora Holdings urged the company to explore a sale. https://bit.ly/40efKmq

 

Financials

Banks, Brokers, Insurance, Asset Managers:

·     BAC downgraded to Neutral at Atlantic Securities citing slowing NII growth and non-II revenues also facing headwinds in 2023 – follows mixed earnings results recently.

·     PFG 4Q:22 operating EPS was $1.70, above consensus at $1.54 as RIS-Fee, RIS-Spread and the tax rate drove the normalized EPS beat, while net flow trends were weak, particularly in RIS-Fee.

·     TFC was downgraded to EW from OW at Stephens noting among the super-regional banks, Truist has been the best performer year-to-date and relative to 2023 PPNR revisions.

·     Crypto bank SI shares jumped midday after Blackrock reported a 7.2% stake, up from 5.91% in prior filing.

·     Other bank earnings: CADE EPS $0.79 vs. est. $0.77 as beat driven by lower expenses and a lower provision, partially offset by lower spread and fees; NYCB PES mostly in-line as expenses offset by NII, taxes and fees; UBS reports results and stock buyback.

 

Bitcoin, FinTech, Payments:

·     FLT upgraded to Buy from Neutral at Bank of America saying it offers attractive risk/reward given progress in addressing headwinds and its "compelling" valuation. Said expect the company to announce additional progress in addressing idiosyncratic headwinds such as the FTC case and divesture of the Russia business.

·     PYPL said o lay off about 7% of workforce or 2,000 jobs.

·     UPST said plans to suspend development of its small business loan product until macroeconomic conditions improve; estimates that it will incur approximately $15 million in total charges in connection with the January 2023 plan.

Healthcare

Biotech & Pharma:

·     Dow component PFE Q4 results above views and said expect strong topline growth of 7% to 9% in 2023 excluding our covid-19 products and anticipated foreign exchange impacts; but slashes view for year as sees FY23 EPS $3.25-$3.45 and revs $67B-$71B (below est. $4.44/$74.13B) – shares of vaccine makers MRNA, BNTX, slip early in reaction to PFE results/guidance.

·     AMGN, ahead of earnings after the close tonight, announced AMJEVITA(TM), a biosimilar to Humira, is now available in the United States.

·     IONS receives Fast Track designation for Olezarsen in patients with familial chylomicronemia syndrome.

·     NVTA downgraded to Sell from Neutral at Goldman Sachs as believes the latest restructuring efforts at co are strategically necessary, sees NVTA emerging as a lower growth company engaged in competitive end markets with a long and uncertain path towards profitability.

·     QURE gets license to a preclinical SOD1 gene therapy as March 22 AdCom date for IONS Tofersen approaches; gets $10m up front.

 

Healthcare Services & MedTech movers:

·     In managed care sector (HUM, UNH, ELV, CVS, CNC, CI, MOH), Medicare seeks $4.7 billion from insurers in final audit rule, to extrapolate error rates starting with 2018 audits. Jefferies said expect short-term weakness in MA-exposed stocks, with HUM leading the way due to highest exposure. Order: HUM, UNH, ELV, CVS, CNC, CI, MOH and 2) lawsuits from MA plans due to the lack of a FFS adjuster. Mizuho said the final RADV rule published is meaningfully better than investor expectations. First, the industry will not be responsible for historical overpayments for 2011-2017, a key win for the industry. CMS opted to remove the FFS risk adjuster used in its prior audit methodology, which eliminates an offset to the error rates found in MA risk adjustment coding (per CMS, overpayments were 7% of MA spending in FY21, or 3% net of underpayments).

 

Industrials & Materials

Transports

·     Package delivery giant UPS forecast sales below consensus estimates ($97B-$99.4B vs. est. $100.3B) amid a decline in package volume; operating profit margin will be 12.8% to 13.6%, compared with the average estimate of 13.2% – Q4 mixed with EPS beat of $3.62 vs. est. $3.59 but revenue of $27B missed the est. $28.09B; announces new $5B share repurchase program. Shares of UPS managed to trade higher, dragging FDX higher as well.

 

Industrials, Aerospace & Defense

·     Dow component and machinery giant CAT Q4 adj EPS $3.86 vs. est. $4.02; Q4 revs $16.6B vs. est. $16.04B; Q4 adj operating income $2.18B vs. est. $2.54B; dealers increased their inventories $2.4 bln in 2022, while remaining about flat in 2021; FY sales and rev increase in 2022 reflected favorable price realization, higher sales volume.

·     OSK 4Q adj EPS $1.60 vs est. $1.73 on sales $2.2B vs est. $2.18B, backlog over $14B; raises qtrly dividend 11% to $0.41/shr; guides FY23 net sales approx $8.4B vs est. $8.6B and EPS around $5.50 which includes expenses vs. est. $6.55.

·     Other industrials moving on earnings this morning included PNR (beat top/bottom), and DOV (slight beat top/bottom) and higher guide; AOS outperforms on qtr. Beat.

·     In Aero, WWD Q1 EPS $0.49 vs. est. $0.63; Q1 revs $618.62M vs. est. $599.43M; sees year EPS $3.15-$3.60 vs. est. $3.39; sees FY revs $2.6B-$2.75B vs. est. $2.64B.

 

Materials, Metals & Mining

·     In paper & packaging: IP Q4 adj EPS $0.87 tops $0.69 estimate while revs of $5.13B misses the $5.19B estimate – said it recognized an impairment charge of $533M in Q4. According to data from the Fibre Box Association, US cardboard box shipments declined 8.4% in the fourth quarter, representing the largest quarterly decline since Q2’09, amid the Great Financial Crisis.

·     In chemicals, LYB upgraded from Neutral to Overweight at Atlantic saying Q4 is likely to see a widely anticipated earnings trough, but despite economic uncertainty, market conditions are improving as China reopens and the US feedstock advantage is boosted by lower natural gas.

·     In metals: Global crude steel output falls 4.2% to 1.88 bln tonnes in the full year 2022 – WorldSteel reported. TECK said it sees 2023 copper production of 390 mln-445 mln tonnes with midpoint above analysts’ estimate of 404 mln tonnes.

 

Technology

Internet, Media & Telecom

·     SPOT shares outperform after saying they expect strong growth in monthly active users (MAUs) and paid subs with margins expanding throughout the year – notes paying subs rose 14% y/y and 5% seq, and at 205mm as of end of Q4 2022.

·     In streaming: PARA downgraded to Underperform from Neutral at Macquarie with $15 tgt given that its ad exposure is highest in the peer group at 35% of sales; WBD has reached deals with streaming services ROKU and FOXA’s Tubi to license 2,000 hours of movies and TV series, as it becomes the latest media company to embrace free, ad-supported streaming TV – Reuters.

 

Hardware & Software movers:

·     CFLT issued upside to guided metrics but leading metrics in RPO / cRPO and forward guidance falling below expectations; showed better-than-expected 4Q22 non-GAAP EPS of ($0.09) (consensus ($0.16)) on revenue of $168.7M (consensus $162.5M), and Confluent cloud revenue of $68.4M (consensus $66.9M), but RPO of $740.7M missing the consensus of $788.4M.

·     GLW Q4 core EPS $0.47 vs. est. $0.44 but down from $0.54 y/y as sales fall -2.2% y/y to $3.63B vs. est. $3.54B; sees Q1 EPS $0.35-$0.42 below est. $0.47 and revs $3.2B-$3.4B vs. est. $3.58B.

·     HLIT falls Q4 results beat but guides 1Q revs $152-162Mm vs est. $161.1Mm and FY revs $695-735Mm vs est. $734Mm, sending shares lower.

·     HUBS authorized a restructuring plan which includes a reduction of company’s current workforce by approximately 7%.

·     AI announces Launch of C3 Generative AI Product Suite.

 

Semiconductors:

·     AMD earnings on deck tonight in semi sector.

·     Reports late yesterday indicated the Biden administration is considering cutting off Huawei Technologies Co. from all its American suppliers, including INTC, QCOM.

·     NXPI weighs on auto related semiconductors after in-line Q4 EPS and revs but guides Q1 revs $2.9B-$3.1B below consensus est. $3.16B; Q4 adj EBIT margin 36.5% and ad gross margin 58% (though notable automotive and industrial end markets were again the strongest in the quarter).

·     Samsung (SSNLF) operating profits sink 69% in Q4 on weaker demand including PCs and smartphones; net profit for Q4 rose 119.9% to 23.84 trillion won, or roughly $19.4 billion reflecting a one-time tax gain from a recent change in South Korean tax laws; Revenue for the three-month period fell by roughly 8%